Dear Momentum Options Subscriber,
The bulls were on a four-session roll, but they were sidelined by the bears during Friday’s market pullback. The bulls easily won the week and are trying to show monthly gains, as tech and the small-caps continue to work towards fresh 52-week and all-time highs. However, the bears are still holding the blue-chips and the broader market hostage heading into the final week of September.
The Dow dropped 131 points, or 0.7%, to close at 18,261 on Friday. The blue-chips traded in negative territory throughout the session, with the low checking in at 18,254. Support at 18,200-18,100 and the 100-day moving average held. Consecutive closes below 18,000 would be a bearish development. Resistance is at 18,350-18,400 and the 50-day moving average. A close above 18,450 should lead to a run towards 18,600-18,800 and record highs.
The S&P 500 flopped 12 points, or 0.6%, to end at 2,164. The index tested a low of 2,163 late in the day, with support at 2,160-2,150 holding. A move below 2,140 could lead to a backtest to 2,125-2,120 and the 100-day moving average. Short-term resistance is at 2,170-2,175 and the 50-day moving average. A close above 2,180 should get 2,190-2,200 and the all-time high at 2,193.81 back in play.
The Nasdaq fell 33 points, or 0.6%, to settle at 5,305. Tech tumbled to a low of 5,301, with fresh support at 5,300-5,250 holding. A move below the latter could lead to a further backtest to 5,200 and the 50-day moving average. Resistance is at 5,350 and last week’s record high of 5,342. There is possible fluff to 5,400-5,500 on continued momentum into October.
The Russell 2000 gave back 8 points, or 0.7%, to finish at 1,254. The small-caps opened half of a point lower before stumbling to their session low into the closing bell. Support at 1,250-1,240 held, but there is risk to 1,230-1,225 and the 50-day moving average on a drop below the latter. Resistance is at 1,260-1,265, followed by 1,275-1,280.
The S&P 500 Volatility Index ($VIX, 12.29, up 0.27) was relatively flat on Friday, with the bears pushing a high of 12.58. I wanted to see lower resistance at 12.50-13 and the 50-day moving average hold into last weekend, which are levels the bulls need to hold this week. If not, there is risk to 14.50-15 and the 100-day moving average. Support is at 11.50-11 and the 52-week low of 11.02. I’m targeting a move to 10 and possibly single-digits on continued market strength.
The Dow started the month at 18,400 and tested lows of 17,994 and 17,992 mid-month. I talked about this being a possible “double bottom,” which is why I mentioned earlier that a close below the 18,000 level could spell trouble for the blue-chips. The rebound to 18,449 and pop past the 50-day moving average on Thursday was a tease, but it could be the first sign of another breakout if those levels are cleared.
The S&P 500 came into September at 2,170 and traded down to 2,119, 2,120 and 2,119 on three-straight sessions mid-month. The index nearly cleared 2,180 last Thursday, and it is up 2% off of the lows. Continued closes above this level should lead to 2,190-2,200 and fresh record highs. A 5% push from the lows would have the index at 2,225.
The Nasdaq was at 5,213 to start the month and traded to a low of 5,097 on Sept. 12. The surge to fresh all-time highs throughout last week represented the ninth record close for 2016. The current rally has reached 208 points, or 4%, since the dip below 5,100. Factoring in an 8% move off of the low would have tech near 5,500, which is the year-end target I posted in February. It is crucial that the 5,200 level holds into October.
The Russell 2000 ended August a shade below 1,240 and bottomed at 1,206 and 1,209 on consecutive sessions earlier this month. The 4% rebound has set fresh 52-week peaks, with the all-time high just below 1,300. This would equate to an 8% move off of the mid-month lows to reach this level and fresh record highs. I wouldn’t short the index until consecutive closes below 1,230-1,225 occur.
While my near-term outlook remains for another 3%-5% upside move for the major indices, a close below major support levels would nullify the current setup. I have repeatedly mentioned throughout the summer that the small-caps were the only index not to set fresh record highs. I still expect that they will, likely in October during earnings season, providing 1,225 holds on any pullback this week and next.
Third-quarter earnings season doesn’t officially start until the second week of October, but it will be the next catalyst for higher highs of possible lower lows. This week and next will still showcase companies with different fiscal years, but the parade hasn’t officially started. I would be hard pressed to say the market will stay in a mini-trading range until then, but it is possible.
Gold ($GOLD, $1,341.70, down $3) came into last week just above $1,300 an ounce, which represents multi-month support. You can see from the chart below that the surge off of the lows near the $1,250 level in June to clear $1,300. With this level holding, last week’s push towards $1,350 and close above the 50-day moving average was a bullish development. The 100- and 200-day moving averages are still in a solid uptrend, and another assault at the $1,370 area appears imminent. A move below $1,320-$1,310 would be a bearish development.
The SPDR Gold Shares ETF (GLD, $127.65, up $0.08) is my favorite way to trade the yellow metal, and it is showing the same technical setup. Resistance is at $128-$129. A close above the latter would be bullish for a run past $130 and fresh 52-week highs. Support is at $127.25-$127 and the 50-day moving average.
The GLD October 130 calls (GLD161021C00130000, $1.00, down $0.05) could be targeted by bullish traders if GLD clears $108 this week. These options have nearly a month of time premium before they expire and would double from current levels if GLD clears $132 by Oct. 21.
The GLD November 130 calls (GLD161118C00130000, $2.00, up $0.05) would provide another month of time premium but are double the price of the aforementioned GLD October 130 calls. GLD shares would need to clear $134, technically, by late November for the trade to return 100%. If GLD taps $133 by November, the trade would net 50%, as the GLD November 130 calls would be $3 in the money.
Bearish traders could target the GLD November 122 puts (GLD161118P00122000, $0.80, down $0.05) if GLD shares fall back below $127-$126.50. However, it might be safer to wait, as GLD is holding monthly support at $125-$124.75. A move below this level would be a more bearish development and a safer way to play a breakdown if the four-month trading range cracks.
Silver ($SILVER, $19.81, down $0.29) gave back the $20 level on Friday but held support at $19.75-$19.50 and the 50-day moving average. A close below the latter would be a bearish development. Longer-term support is at $18.50 and the 100-day moving average.
The 100- and 200-day moving averages are starting to lose some upside steam, and the 50-day moving average is looking slightly shaky. Upper resistance at $20.50 needs to be cleared before I would put new money into play.
One way to play silver is by tracking the iShares Silver Trust (SLV, $18.68, down $0.22). Support is at $18.50 and the 50-day moving average. Resistance is at $18.75-$19.
The SLV October 18 calls (SLV161021C00018000, $0.85, down $0.20) fell 18% on Friday and could be targeted by bullish traders looking for a rebound to $19-$19.50. These options would double from current levels if SLV shares trade past $19.70, technically, by Oct. 21.
Interestingly, the SLV October 20 calls (SLV161021C00020000, $0.13, down $0.06) traded over 9,000 contracts on Friday. These calls would double if SLV shares clear $20.26, technically, in less than four weeks. However, the 52-week high is at $19.71, and upper resistance at $19.75-$20 could hold into expiration. This would mean that the aforementioned options would expire worthless.
I wanted to cover Copper ($Copper, $2.201, up $0.007) as well, as it offer some clues on the economy. Copper prices tend to rise during stronger economic times, but we aren’t in that type of growth phase where demand will be exploding anytime soon. However, higher highs might be in store.
The metal cleared its 50-day moving average last week and looks poised to make a run towards $2.25-$2.275 over the near-term. Support at $2.175-$2.15 will need to hold on a pullback.
Active traders like to follow Freeport McMoRan (FCX, $10.63, down $0.45), but the chart is looking bearish, with the 50- and 100-day moving averages in a downtrend. Near-term resistance is at $10.75-$11, and a bullish pattern isn’t likely to appear until shares clear $11.50-$11.75. Support is at $10.50, followed by $10.25-$10.50.
Bearish traders could target the FCX October 11 puts (FCX161021P00011000, $0.85, up $0.15) for a possible backtest to $10-$9.50. If FCX falls below $9.30 by Oct. 21, these put options would double from current levels.
The same clues I have been watching in recent weeks remain in play, including the action in the Nasdaq, the Russell 2000 and the VIX. A higher Monday close today would be a bullish clue that money is still flowing into the market, but Friday closes have to follow suit over the next few weeks.
I will be keeping the bullish and bearish trades mentioned above in focus, but there are also a number of other stocks and sectors that I like for long and short opportunities. I will cover some additional ideas later on this week and provide a sneak-peak of the upcoming third-quarter earnings season as well.
From desk to press, futures look like this: Dow (-86); S&P 500 (-9); Nasdaq 100 (-26); Russell (-6).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 72-24 (75%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 8:00 a.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Goodyear Tire & Rubber (GT, $32.30, down $0.12)
GT October 33 calls (GT161021C00033000, $0.60, down $0.10)
Entry Price: $0.75 (9/22/2016)
Exit Target: $1.50
Stop Target: None
Action: Support is at $32.25-$32. Near-term resistance is at $32.75-$33. A close above the latter should get $34-$35 in play.
A “golden cross” is in the process of forming, with the 50-day moving average just $0.10 away from clearing the 200-day moving average. This is usually a bullish setup to higher highs. The 52-week high is at $35.30. I will have a more detailed write-up on GT this afternoon along with a look at its upcoming earnings.
Finisar (FNSR, $29.22, down $0.11)
FNSR November 30 calls (FNSR161118C00030000, $1.15, down $0.11)
Entry Price: $1.20 (9/22/2016)
Exit Target: $2.40
Stop Target: $0.60
Action: Friday’s low tapped $28.89. Support is at $29-$28.75. Near-term resistance is at $29.25-$29.50. The 52-week peak is at $29.40. All of the major moving averages are in a solid uptrend, and my near-term target is $32-$33 on a blast past $30.
You can read my detailed write-up for FNSR in last Thursday’s Mid-Market Update.
Kroger (KR, $30.45, down $0.30)
KR October 30 puts (KR161021P00030000, $0.54, up $0.09)
Entry Price: $0.78 (9/7/2016)
Exit Target: $1.60 (Limit Order on first half)
Stop Target: $0.20 (Stop Limit)
Action: Friday’s test to $30.44 represented a 52-week low. Fresh support and multi-year support is at $30-$29.50. My near-term target is $28. All of the major moving averages are in nasty downtrends that are showing no signs of letting up anytime soon. Resistance has moved down to $30.75-$31.
Vuzix (VUZI, $9.16, up $0.38)
VUZI October 10 calls (VUZI161021C00010000, $0.40, up $0.10)
Entry Price: $0.68 (9/7/2016)
Exit Target: $1.40
Stop Target: $0.22 (Stop Limit)
Action: Fresh resistance is at $9.25-$9.50. A close above the latter should get $9.75-$10 in play. The 52-week peak is at $9.80. Support has moved up to $8.75-$8.50.
Viavi Solutions (VIAV, $7.43, down $0.07)
VIAV December 8 calls (VIAV161216C00008000, $0.26, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.15 (Stop Limit)
Action: Support is at $7.25-$7.20, followed by $7 and the 100-day moving average. Resistance is at $7.45-$7.50 and the 50-day moving average, followed by $7.75.
Editor and Chief Options Strategist